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The Week Ahead: House Committee to Examine FHFA Actions

On Tuesday, May 23 at 9:00 a.m. Central in Room 2128 of the Rayburn House Office Building, the House Financial Services Committee will hold a hearing entitled, “FHFA Oversight: Protecting Homeowners and Taxpayers.” Testifying at the hearing will be the Honorable Sandra L. Thompson, Director of the Federal Housing Finance Agency (FHFA).

The FHFA is an independent regulatory agency responsible for overseeing the housing Government-Sponsored Enterprises (GSEs), Fannie Mae, Freddie Mac, as well as the Federal Home Loan Banks (FHLBs). FHFA was created by the Housing and Economic Recovery Act (HERA) of 2008 (P.L. #110–289), which merged the Federal Housing Finance Board, the FHLBs’ previous regulator, and the Office of Federal Housing Enterprise Oversight, the former safety-and-soundness regulator for Fannie Mae and Freddie Mac.

The FHFA is headed by a single Director (Thompson) appointed by the President, and confirmed by the Senate to a five-year term. Thompson, was sworn in following her confirmation in June of 2022. She previously served as FHFA’s Acting Director.

The GSEs are private corporations chartered by the federal government with special benefits to help make homeownership more available and affordable for lower- and middle-income Americans. Congress established Fannie Mae during the New Deal. It later created Freddie Mac in 1970 as Fannie Mae’s competitor. The GSEs were chartered to provide liquidity in the mortgage market and promote homeownership for underserved groups and locations. The GSEs are not mortgage lenders.

In addition to being their regulator, FHFA also serves as conservator for each GSE, a role it has played since their respective financial collapses in September 2008. As a conservator, FHFA has the statutory authority to take action, “… necessary to put the regulated entity in a sound and solvent condition …,” and, “… appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.” Fifteen years later, Fannie and Freddie remain under government conservatorship.

As the primary regulator of the nation’s housing finance system, FHFA plays a unique role in how the mortgage market functions. At the end of 2022, the GSEs combined owned or guaranteed approximately $7.4 trillion in single-family and multifamily mortgages. This amount is over half of the $13 trillion plus U.S. mortgage market. The regulatory decisions that FHFA makes, which cover the GSEs and the FHLBs, coupled with the operational decisions it has been making as the conservator of the GSEs, gives it tremendous influence over the availability of and access to mortgage credit for millions of Americans. In light of recent rate increases and inflationary pressures, it remains essential that Congress conduct regular oversight of FHFA and, by extension, the activities of Fannie Mae and Freddie Mac.

Director Thompson last testified before the House Financial Services Committee on July 20, 2022. Prior to that, it had been two full years since the Committee held an FHFA oversight hearing (which was with now-former Director Dr. Mark Calabria).

Since beginning her term as Acting Director, Director Thompson has been very active on a host of regulatory fronts, both as the regulator and conservator of the GSEs. These decisions, both big and small, have far-reaching impacts on all aspects of the nation’s housing finance system.

FHFA’s new policies have impacted everything from the price of mortgages paid directly by borrowers to the accounting rules regarding credit risk transfer (CRT) transactions.

As she has previously testified, Director Thompson has noted, “safety and soundness and equitable access to credit are not mutually exclusive ... We have taken some important steps to advance FHFA’s mission of ensuring the safety and soundness of the regulated entities and ensuring access to affordable and sustainable housing.”

One of the most significant changes to take effect under Thompson’s tenure has been the implementation of the Enterprise Regulatory Capital Framework (ERCF). In February of 2022, FHFA announced its Final Rule which would lower the GSEs’ total capital requirements by about $75 billion from the prior ERCF proposed by former Director Calabria in 2020.

In a related change, in January of 2023, FHFA announced a series of pricing adjustments to the framework of upfront fees the GSEs charge lenders on single-family loans, or Loan-Level Price Adjustments (LLPAs). This announcement, which increases and decreases the fees for the vast majority of purchase and rate-term refinance loans acquired by the GSEs, represents the first change to the overall pricing grids previously in place since 2008.

The new fees announcement follows two targeted changes made in 2022 to alter prices for a limited set of loan products. Two weeks after the price changes took effect on May 1, FHFA issued a Request for Input to gather public feedback on “on the goals and policy priorities that FHFA should pursue in its oversight of the pricing framework.”

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About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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